UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-K

[X]    Annual  Report  Pursuant  to Section 13 or 15(d) of the  Securities
       Exchange  Act of 1934 for the fiscal year ended June 30, 2000

[ ]    Transition  Report  Pursuant  to Section  13 or 15(d) of the Securities
       Exchange Act of 1934

          For the transition period from             to
                                        -------------   --------------

                           Commission File No. 1-4383

                         ESPEY MFG. & ELECTRONICS CORP.
             -------------------------------------------------------
             (Exact name of registrant as specified in its charter)


              New York                                         14-1387171
--------------------------------------------------------------------------------
(State or other jurisdiction of                              (IRS Employer
incorporation or organization)                               Identification No.)


                 233 Ballston Avenue, Saratoga Springs, NY 12866
--------------------------------------------------------------------------------
           (Address of principal executive offices including Zip Code)

       (Registrant's telephone number including area code) (518) 584-4100

                                                       Name of Each Exchange
                Title of Each Class                     on Which Registered
                -------------------                     -------------------
       Common Stock $.33-1/3 par value                 American Stock Exchange
       Common Stock Purchase Rights                    American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months,  and (2) has been subject to such filing  requirements
for the past 90 days [X] Yes [ ] No

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant was  $17,700,931 as of September 13, 2000 based upon the closing sale
price of $17.125 on the American Stock Exchange on September 13, 2000.

The number of shares of common stock  outstanding  as of September  13, 2000 was
1,033,631.


<PAGE>

                                     PART I

Item 1.           Business.

General

Espey Mfg. & Electronics  Corp.  (the  "Company") is engaged  principally in the
development,  design,  production  and  sales of  specialized  electronic  power
supplies,   a  wide  variety  of  transformers  and  other  types  of  iron-core
components,  and  electronic  system  components.  In some  cases,  the  Company
manufactures  such  products in accordance  with  pre-developed  mechanical  and
electrical requirements. In other cases, the Company is responsible for both the
overall design and  manufacture  of the product.  The Company does not generally
manufacture standardized components. The Company operates a one-segment business
and was incorporated in 1928.

The electronic  power supplies and components  manufactured  by the Company find
application principally in (i) shipboard and land based radar, (ii) locomotives,
(iii) aircraft,  (iv) short, medium range and global communication  systems, (v)
navigation systems for aircraft,  (vi) nuclear submarine control systems,  (vii)
missile guidance and control systems and (viii) land-based military vehicles.

The Company's iron-core  components include (i) transformers of the audio, power
and pulse types, (ii) magnetic amplifiers and (iii) audio filters.

The electronic  system  components  manufactured  by the Company include antenna
systems and high power radar  transmitters.  These system components utilize the
Company's  own  electronic  power  supplies,  transformers  and other  iron-core
components and mechanical assemblies.

In the fiscal  year ended June 30,  2000  (referred  to herein as  "2000"),  the
Company's  total  sales  were  $14,719,818.  Sales  to  two  domestic  customers
accounted  for  29.7% and 26.3% of total  sales in 2000.  Sales to two  domestic
customers  and one  foreign  customer  accounted  for  37.6%,  25.4% and  11.2%,
respectively,  of  total  sales  in 1999.  Sales  to  three  domestic  customers
accounted for 47.9%, 14.7%, and 12.5%, respectively, of total sales in 1998.

Export  sales in 2000 and 1999 were  approximately  $4,200,000  and  $2,500,000,
respectively,  and were  not  significant  in 1998.  During  1999,  the  Company
established a foreign sales corporation.

Raw Materials

The Company has never experienced any significant delay or shortage with respect
to the purchase of raw materials and components  used in the  manufacture of its
products,  and  has at  least  two  potential  sources  of  supply  for  all raw
materials.

Sales Backlog

At September 13, 2000, the Company's  backlog was  approximately  $28.0 million.
The total backlog at June 30, 2000 was  approximately  $29.1 million as compared
to  approximately  $16.9  million at June 30,  1999.  The  Company's  backlog is
discussed in greater detail in Management's Discussion and Analysis of Financial
Condition and Results of Operations, contained in Item 7, below.

It is presently  anticipated that a minimum of $15 million of orders  comprising
the June 30, 2000 backlog will be filled  during the fiscal year ending June 30,
2001.  The minimum of $15 million  does not include any  shipments  which may be
made against orders subsequently received during the fiscal year ending June 30,
2001.  The estimate of the June 30, 2000 backlog to be shipped in fiscal 2001 is
subject  to future  events  which may cause the amount of the  backlog  actually
shipped to differ from such estimate.


                                       2
<PAGE>

Marketing and Competition

The  Company  markets  its  products  primarily  through  its own  direct  sales
organization.  Business is solicited from Fortune 500  companies,  United States
and foreign  governments and major foreign electronic  equipment  companies.  In
certain countries the Company has external sales representatives to help solicit
and coordinate  foreign  contracts.  The Company is also on the eligible list of
contractors  of many  agencies of the  Department  of Defense and  generally  is
automatically  solicited by such agencies for  procurement  needs falling within
the major classes of products produced by the Company. In addition,  the Company
directly  solicits  bids from both the  Department  of Defense and other  United
States Government agencies for prime contracts.

There is  competition  in all classes of products  manufactured  by the Company,
from divisions of the largest  electronic  companies in the country,  as well as
many small companies.  The Company's sales do not represent a significant  share
of the industry's market for any class of its products. The principal methods of
competition  for electronic  products of both a military and  industrial  nature
include, among other factors, price, product performance,  the experience of the
particular company and history of its dealings in such products. The Company, as
well as other  companies  engaged in supplying  equipment  for military  use, is
subject  to  various  risks,  including,   without  limitation,   dependence  on
government appropriations and program allocations, the competition for available
military business, and government termination of orders for convenience.

The Company's business is not considered to be of a seasonal nature.

Research and Development

The  Company's  expenditures  for research and  development  were  approximately
$255,000,  $291,000 and $244,000 in 2000, 1999 and 1998,  respectively.  Some of
the Company's  engineers and technicians spend varying degrees of time on either
development of new products or improvement of existing products.

Employees

The number of persons employed by the Company as of September 13, 2000 was 242.


Government Regulations

Compliance  with federal,  state and local  provisions that have been enacted or
adopted  to  regulate  the  discharge  of  materials  into the  environment,  or
otherwise  relating to the protection of the  environment,  did not in 2000, and
the Company believes will not in fiscal 2001 or any succeeding fiscal year, have
a  material  effect  upon the  capital  expenditures,  earnings  or  competitive
position of the Company.


Item 2.           Properties.

The Company's principal  manufacturing and all of its engineering facilities are
at its plant in Saratoga Springs, New York, which the Company owns.

The Saratoga  Springs  plant  consists of various  closely  adjoining  one-story
buildings.   The  plant  has  a  sprinkler   system   throughout   and  contains
approximately  151,000  square feet of floor space,  of which 90,000 is used for
manufacturing,  24,000 for  engineering,  33,000 for shipping  and  climatically
secured  storage,  and 4,000 for  offices.  The  offices,  engineering  and some
manufacturing  areas are  air-conditioned.  In addition  to assembly  and wiring
operations,  the plant includes  facilities for  varnishing,  potting,  plating,
impregnation and spray painting  operations.  The  manufacturing  operation also
includes a complete  machine  shop,  with  welding and sheet  metal  fabrication
facilities  adequate for substantially all of the Company's current  operations.
Besides normal test equipment,  the Company  maintains a  sophisticated  on-site
environmental  test  facility.  In  addition  to  meeting  all of the  Company's


                                       3
<PAGE>

in-house  needs,  the plating,  machine shop and  environmental  facilities  are
available to other companies on a contract basis.

The Company owns an additional  manufacturing facility in a three-story building
of approximately  4,000 square feet in  Gloversville,  New York. The facility is
used primarily for subcomponent wiring and assembly.

The  Company  maintains  a sales  office in Great  Neck,  New York.  This space,
comprising approximately 750 square feet, is leased from a non-affiliated person
for a term expiring on September 9, 2001.

Item 3.           Legal Proceedings.

                  None

Item 4.           Submission of Matters to a Vote of Security Holders.

                  None



                                     PART II

Item 5.           Market for the Registrant's Common Equity and Related
                  Stockholder Matters.


Price Range of Common Stock

The table below shows the range of high and low prices for the Company's  common
stock on the American Stock  Exchange,  the principal  market for trading in the
common stock, for each quarterly period for the last two fiscal years ended June
30:



        2000                        High                  Low

First Quarter                      14 3/4               12 1/8
Second Quarter                     15 1/4               13 5/8
Third Quarter                      15 9/16              12 7/8
Fourth Quarter                     15 1/8               13 7/8



        1999                        High                  Low

First Quarter                      14 5/8               12 3/4
Second Quarter                     13 3/8               12 3/8
Third Quarter                      14 1/8               11 3/4
Fourth Quarter                     12 3/4               11 1/4





Holders

The  approximate  number of  holders  of record of the  common  stock was 168 on
September  13,  2000  according  to records  of the  Company's  transfer  agent.
Included  in this  number are shares held in  "nominee"  or  "street"  name and,
therefore, the number of beneficial owners of the common stock is believed to be
substantially in excess of the foregoing number.


                                       4
<PAGE>


Dividends

The Company  paid a cash  dividend on the common stock of $.20 per share for the
fiscal years ended June 30, 2000 and 1999,  respectively,  and $.70 per share in
its fiscal year ended June 30, 1998.  The Board of Directors has  authorized the
payment of a fiscal 2001 first quarter dividend of $.05 payable on September 29,
2000 to  shareholders  of record on September 1, 2000. On a quarterly  basis the
Board of Directors will consider dividend declarations for fiscal 2001.


Item 6.           Selected Financial Data.


                         ESPEY MFG. & ELECTRONICS CORP.
                         Five Years Ended June 30, 2000

<TABLE>
<CAPTION>
                                                          Year Ended June 30,
                               -----------------------------------------------------------------------
Selected Income Statement Data     2000            1999           1998           1997         1996
                               ------------   ------------    ------------   ------------ ------------
<S>                             <C>           <C>             <C>            <C>          <C>
Net Sales....................   $14,719,818   $ 13,629,692    $ 10,793,572   $ 15,166,075 $ 16,800,200
Operating income (loss)......       733,617        690,839     (1,750,663)        342,177      209,226
Other income, net............       459,326        441,762         595,691        525,046      575,006
                               ------------   ------------    ------------   ------------ ------------

      Net income (loss)......       782,943        730,601       (739,602)        563,128      522,737

Income (loss) per common share:         .75   $        .66   $       (.67)   $        .51 $        .41
                               ============   ============    ============   ============ ============

Selected Balance Sheet Data

Current assets...............    22,540,316     22,091,114      21,309,658     21,819,899   21,499,805
Current liabilities..........     1,329,171      1,274,126         883,980        599,180      623,908
Working capital..............    21,211,145     20,816,988      20,425,678     21,220,719   20,875,897
Total assets.................    26,118,037     25,394,712      24,574,108     25,199,951   24,950,043
Long-term liabilities (deferred
      income taxes)..........            --             --              --             --           --
                               ------------   ------------    ------------   ------------ ------------

Stockholders' equity.........    24,788,866     24,120,586      23,690,128     24,600,771   24,326,135
                               ------------   ------------    ------------   ------------ ------------

Cash dividends declared and paid
      per common share.......          $.20   $        .20    $        .70   $        .70 $        .70
                               ============   ============    ============   ============ ============
</TABLE>



Item 7.           Management's Discussion and Analysis of Financial
                  Condition and Results of Operations.

Results of Operations

Net Sales for fiscal years ended June 30, 2000, 1999,and 1998, were $14,719,818,
$13,629,692, and $10,793,572,  respectively.  The 8% increase in sales over 1999
is a result of the Company  continuing  to realize the  benefits of  intensified
sales and  marketing  efforts in an attempt to increase  business  with existing
customers as well as establishing new customer relationships. These efforts have
provided for the continued  increase in the sales backlog that has occurred over
the last several quarters.  The sales backlog at June 30, 2000 was approximately
$29.1  million,  a 72% increase over the June 30, 1999 backlog.  The increase in
backlog  includes  significant  orders for the Company's land and shipboard high
voltage  radar  power   supply/transmitters,   industrial  power  supplies,  and
significant  contracts to manufacture  certain  customer  products in accordance
with  pre-developed  requirements.  The 26%  increase  in net  sales  in 1999 as
compared to 1998 was also a result of  intensified  sales and marketing  efforts
which  increased  the sales  order  backlog  and  allowed  the  company  to ship
significantly more in 1999.  Significant shipments in 1999 included high voltage
radar power supply/transmitters, repair depot, and industrial power supplies.

Net income for fiscal 2000,  was $782,943 or $.75 per share compared to $730,601
or $.66 per share for fiscal 1999.  The 13.6% increase in earnings per share was
due to increased net sales,  increased internal cost controls, and a decrease in
the  average  number of shares  outstanding.  Net income for  fiscal  1999,  was
$730,601  or $.66 per share  compared  to a net loss of  $739,602  or ($.67) per


                                       5
<PAGE>


share for fiscal 1998.  The net income  increase was due to increased net sales,
favorable  product  mix  and  an  overall  decrease  in  selling,   general  and
administrative expenses.

For  fiscal  years  ended  June  30,  2000,  1999 and 1998  gross  profits  were
$2,735,934, $2,537,676, and $685,953, respectively. Gross profit for fiscal 2000
was a percentage of sales  remained  consistent  with fiscal 1999 at 18.6%.  The
increase in gross profit between 2000, 1999, and 1998, was  predominately due to
increased  efficiency in the  manufacturing  and  engineering  workforces and an
increase in net sales.

Selling, general and administrative expenses were $2,002,317 for the fiscal year
ended June 30,  2000,  an increase of  $155,480,  or 8% as compared to the prior
year.  This increase is mainly  attributable  to an overall  increase in selling
expenses.  Selling,  general and administrative expenses were $1,846,837 for the
year ended June 30,  1999,  a decrease of  $110,279,  or 5.6% as compared to the
prior year.  The  reduction is primarily  related to a decrease in  professional
fees, officer's salaries and employment-related expenses.

Total other income in fiscal 2000  remained  relatively  consistent  with fiscal
1999. Interest and dividend income decreased as expected, however, this decrease
was offset by government grants received related to increased employment.  Total
other income in fiscal 1999, as compare to fiscal 1998 declined as expected,  as
the company  continued  to increase  the backlog and improve  overall net sales,
more cash was being  utilized in operations  for  inventory and higher  accounts
receivable  balances  during fiscal 1999.  This trend left the company with less
cash to invest in interest  bearing  securities.  Also,  interest rates declined
slightly in fiscal 1999 from fiscal 1998.

Business Outlook

The Company  continues to increase net sales while also  increasing the existing
sales  backlog.  The sales  backlog of $28.0  million as of September  13, 2000,
gives the  Company a solid base to grow over the next few years.  In addition to
the backlog,  the Company currently has outstanding  quotations in excess of $22
million  for both  repeat and new  programs.  The  Company  has  received  major
contracts for power  supplies  which should find  extensive use  throughout  the
world. The Company also expects to receive substantial orders for spare parts on
the various types of transmitters  which are already in the field,  and a number
of contracts for further  development and manufacture of numerous  transformers.
The outstanding  quotations  encompass  various new and previously  manufactured
power  supplies,   transformers,   and   subassemblies.   Management   presently
anticipates  that the Company  will  realize  both an  increase in revenues  and
income in 2001, however, there can be no assurance that the Company will acquire
any or all of the proposed orders  described above since such a  forward-looking
statement is subject to future events, market conditions, political stability of
foreign governments, and allocations of the United States defense budget.

Liquidity and Capital Resources

The Company's  working  capital is an appropriate  indicator of the liquidity of
its  business,  and  during the past  three  fiscal  years,  the  Company,  when
possible,  has  funded all of its  operations  with cash  flows  resulting  from
operating  activities and when necessary from its existing cash and investments.
The  Company did not borrow any funds  during the last three  fiscal  years.  On
April 26, 2000, management  established a $3,000,000 line of credit to help fund
further growth, if necessary,  but does not anticipate the need for any borrowed
funds in the foreseeable future.

The  Company's  working  capital  as  of  June  30,  2000,  1999  and  1998  was
$21,211,145,  $20,816,988, and $20,425,678,  respectively.  During 2000 and 1999
the Company  repurchased 30,027 and 47,562 shares,  respectively,  of its common
stock from the Company's ESOP and in other private and public transactions,  for
a total  purchase price of $403,472 and  $604,226,respectively.  The Company did
not repurchase  any of its common stock during fiscal year 1998.  Under existing

                                       6
<PAGE>


authorizations from the Company's Board of Directors,  as of September 13, 2000,
management is authorized  to purchase an  additional  $925,750  worth of Company
stock.

The table below  presents  the summary of cash flow  information  for the fiscal
year indicated:

                                                      2000              1999
                                                      ----              ----

Net cash used in operating activities.............   $2,076,644     $ 2,947,631
Net cash provided by investing activities.........    2,691,701       3,541,565
Net cash used in financing activities.............      612,201         821,338



Net cash used in operating activities  fluctuates between periods primarily as a
result of  differences  in net income,  the timing of the collection of accounts
receivable,  purchases  of  inventory,  level of sales and  payment of  accounts
payable.  The cash provided by investing  activities is due to the maturities of
the  Company's  investment   securities  with  no  offsetting  purchase  of  new
investments as the Company needed the funds to support current  operations.  The
decrease  in cash used in  financing  activities  is due to the  decrease in the
amount of treasury stock purchased during 2000 as explained above.

The Company believes that the cash generated from operations and when necessary,
from cash and cash equivalents, will be sufficient to meet its long-term funding
requirements.

Management  believes  that the  Company's  reserve  for bad  debts of  $3,000 is
adequate  given the  customers  with whom the Company  deals.  The amount of bad
debts over the years has been minimal.

During fiscal year 2000, and 1999, the Company expended  approximately  $782,100
and  $508,000,  respectively,  for plant  improvements  and new  equipment.  The
Company  plans to expend  approximately  $385,000  for new  equipment  and plant
improvements in fiscal 2001.  Management  presently  anticipates  that the funds
required will be available from current operations.




Management Restructuring

At the end of the fiscal 1998, the Company  implemented a management  succession
plan. The plan was effectuated  through  agreements with five executive officers
of the Company: Joseph Canterino (former President and Chief Executive Officer),
Barry Pinsley (former Vice  President-Investor  Relations and Human  Resources),
Seymour Saslow (Senior Vice President), Herbert Potoker (Treasurer and Principal
Financial  Officer)  and  Reita  Wojtowecz  (Secretary).  Under the terms of the
agreements,  the executives  agreed to resign from their  positions as executive
officers  and  are  being   compensated  in  accordance  with  their  respective
agreements. The implementation of this plan resulted in the Company recording in
fiscal 1998 a $479,500  pre-tax  charge for payments due under the contracts and
costs related to the implementation of the plan. The costs of the plan are being
paid with cash flows from the Company's operating  activities.  At June 30, 2000
approximately $142,000 remains to be paid under these agreements.


Other Matters

An Employee  Retirement Plan and Trust ("ESOP") was established for the eligible
non-union  employees of the Company and was  effective  as of July 1, 1988.  The
ESOP used the proceeds of a loan from the Company to purchase  316,224 shares of
the  Company's  common  stock  for  approximately  $8,400,000,  and the  Company
contributed  approximately  $400,000 to the ESOP,  which was used by the ESOP to
purchase an additional 15,000 shares of the Company's common stock.

Each year the Company makes  contributions  to the ESOP,  which are used to make
loan interest and principal  payments.  With each loan and interest  payment,  a


                                       7
<PAGE>

portion of the common stock will be allocated to participating  employees. As of
June 30, 2000, there were 197,137 shares  allocated to  participants.  Dividends
attributable to allocated  shares were likewise  allocated to the  participants'
accounts,  whereas the dividends on unallocated  shares were used as part of the
loan repayment, thus reducing the Company's required contribution.

The loan from the Company to the ESOP is  repayable  in annual  installments  of
$1,039,605,  including interest through June 30, 2004.  Interest is payable at a
rate of 9% per annum.  The  Company's  receivable  from the ESOP is  recorded as
common stock subscribed in the accompanying balance sheets.



Year 2000 Issues

The  Company's  information   technology  systems  successfully   completed  the
transition  into the year 2000.  The  beginning  of the new year  resulted in no
adverse or negative  impact on  operations.  The Company  believes that the risk
associated with the year 2000 problem has been  identified and  eliminated.  The
Company will continue to evaluate the 2000 readiness of its business systems and
significant  vendors to ensure a complete  transition through the year 2000. The
estimated total cost of the year 2000  assessment and remediation  plan has been
less than $25,000.

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995

It  should  be  noted  that in this  Management's  Discussion  and  Analysis  of
Financial Condition and Results of Operations are  "forward-looking  statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the  Securities  Exchange Act of 1934,  as amended,  and are made
pursuant to the safe harbor  provisions  of the  Private  Securities  Litigation
Reform  Act of  1995.  The  terms  "believe,"  "anticipate,"  "intend,"  "goal,"
"expect," and similar expressions may identify forward-looking statements. These
forward-looking  statements  represent the  Company's  current  expectations  or
beliefs  concerning  future events.  The matters covered by these statements are
subject to certain risks and  uncertainties  that could cause actual  results to
differ  materially  from  those  set  forth in the  forward-looking  statements,
including  the  Company's  dependence on timely  development,  introduction  and
customer  acceptance  of new  products,  the  impact  of  competition  and price
erosion,  as well as supply and  manufacturing  constraints  and other risks and
uncertainties. The foregoing list should not be construed as exhaustive, and the
Company  disclaims any  obligation  subsequently  to revise any  forward-looking
statements to reflect events or circumstances  after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events. The Company
wishes  to  caution   readers   not  to  place   undue   reliance  on  any  such
forward-looking statements, which speak only as of the date made.


                                       8
<PAGE>

Item 8.           Financial Statements



Report of Independent Accountants



To the Board of Directors and Stockholders of
Espey Mfg. & Electronics Corp. and Subsidiary:


In our opinion,  the 2000 and 1999 consolidated  financial  statements listed in
the  index  appearing  under  Item  14(a)(1)  present  fairly,  in all  material
respects,  the  financial  position  of Espey Mfg.  and  Electronics  Corp.  and
Subsidiary at June 30, 2000 and 1999,  and the results of their  operations  and
their  cash  flows  for the  years  then  ended in  conformity  with  accounting
principles  generally accepted in the United States of America.  These financial
statements   are  the   responsibility   of  the   Company's   management;   our
responsibility  is to express an opinion on these financial  statements based on
our audits.  We conducted  our audits of these  statements  in  accordance  with
auditing  standards  generally  accepted in the United States of America,  which
require that we plan and perform the audit to obtain reasonable  assurance about
whether the financial  statements  are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.  We   believe  that  our  audits  provide  a
reasonable basis for the opinion expressed above.



/s/PricewaterhouseCoopers LLP
-----------------------------
PricewaterhouseCoopers LLP
Albany, New York
August 22, 2000

                                       9
<PAGE>
                          Independent Auditors' Report

The Board of Directors and Stockholders
Espey Mfg. & Electronics Corp.:


We have audited the statements of income,  changes in stockholders'  equity, and
cash flows of Espey Mfg. & Electronics  Corp.  for the year ended June 30, 1998,
as listed in the index appearing under Item 14(a)(1). These financial statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the results of  operations  and the cash flows of Espey
Mfg. & Electronics  Corp.  for the year ended June 30, 1998, in conformity  with
generally accepted accounting principles.



/s/KPMG LLP
-----------
KPMG LLP

Albany, New York
August 26, 1998


                                       10
<PAGE>


Espey Mfg. & Electronics Corp. and Subsidiary
Consolidated Balance Sheets
June 30, 2000 and 1999
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                     2000               1999
<S>                                                                            <C>
ASSETS
Current assets:
     Cash and cash equivalents                                                 $     2,367,191    $     2,364,335
     Investment securities                                                             650,000          3,674,169
                                                                               -----------------  -----------------
            Net cash and cash equivalents and investment securities                  3,017,191          6,038,504
                                                                               -----------------  -----------------

     Trade accounts receivable, net                                                  4,105,028          4,440,177
     Other receivables                                                                  46,435             10,941
                                                                               -----------------  -----------------
            Net receivables                                                          4,151,463          4,451,118
                                                                               -----------------  -----------------

     Inventories:
         Raw materials and supplies                                                    822,814            546,007
         Work in process                                                             3,113,708          2,639,330
         Costs related to contracts in process, net of progress payments of
            $537,468 in 2000 and $-0- in 1999                                       10,889,930          7,856,607
                                                                               -----------------  -----------------
            Net inventories                                                         14,826,452         11,041,944
                                                                               -----------------  -----------------

     Deferred income taxes                                                             299,709            327,497
     Prepaid expenses and other current assets                                         245,501            232,051
                                                                               -----------------  -----------------

         Total current assets                                                       22,540,316         22,091,114
                                                                               -----------------  -----------------

Deferred income taxes                                                                    6,516             42,367
                                                                               -----------------  -----------------

Property, plant and equipment, at cost                                              13,165,043         12,851,825
Less accumulated depreciation                                                       (9,593,838)        (9,590,594)
                                                                               -----------------  -----------------
     Net property, plant and equipment                                               3,571,205          3,261,231
                                                                               -----------------  -----------------

         Total assets                                                          $                  $
                                                                                    26,118,037         25,394,712
                                                                               =================  =================
</TABLE>
<TABLE>
<CAPTION>
<S>                                                                            <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

Current
liabilities:
     Accounts payable                                                          $       541,636    $       285,281
     Accrued expenses:
         Salaries, wages and commissions                                               244,865            498,695
         Vacation                                                                      280,493            211,162
         Employee insurance costs                                                       65,194             58,539
         Other                                                                           3,372             41,251
     Payroll and other taxes withheld and accrued                                       69,536            116,211
     Income taxes payable                                                              124,075             62,987
                                                                               -----------------  -----------------
            Total current liabilities                                                1,329,171          1,274,126
                                                                               -----------------  -----------------

Stockholders' equity:
     Common stock, par value $.33-1/3 per share authorized 10,000,000                  504,979            504,979
     shares;
         issued 1,514,937 shares in 2000 and 1999; outstanding 1,033,631
         and 1,063,658 shares in 2000 and 1999
         Capital in excess of par value                                             10,496,287         10,496,287
         Accumulated other comprehensive (loss)                                       (107,221)           (38,175)
         Retained earnings                                                          23,775,433         23,193,297
                                                                               -----------------  -----------------
                                                                                    34,669,478         34,156,388

         Less common stock subscribed                                               (2,234,650)        (2,793,312)
         Cost of 481,306 and 451,279 shares of common stock in
            treasury in 2000 and 1999, respectively                                 (7,645,962)        (7,242,490)
                                                                               -----------------  -----------------

            Total stockholders' equity                                              24,788,866         24,120,586
                                                                               -----------------  -----------------

            Total liabilities and stockholders' equity                         $    26,118,037    $    25,394,712
                                                                               =================  =================
</TABLE>


The  accompanying  notes  are an  integral  part  of the consolidated  financial
statements.


                                       11
<PAGE>
Espey Mfg. & Electronics Corp. and Subsidiary
Consolidated Statements of Income
Years Ended June 30, 2000, 1999 and 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                    2000               1999                1998
<S>                                                            <C>                <C>             <C>
Net sales                                                      $  14,719,818     $   13,629,692   $     10,793,572
Cost of sales                                                     11,983,884         11,092,016         10,107,619
                                                             -----------------  -----------------  -------------------
     Gross profit                                                  2,735,934          2,537,676            685,953

Selling, general and administrative expense                        2,002,317          1,846,837          1,957,116

Other costs                                                               --                 --            479,500
                                                             -----------------  -----------------  -------------------
     Operating income (loss)                                         733,617            690,839         (1,750,663)

Other income
     Interest and dividend income                                    363,599            425,330            553,540

     Other                                                            95,727             16,432             42,151
                                                             -----------------  -----------------  -------------------
         Total other income                                          459,326            441,762            595,691
                                                             -----------------  -----------------  -------------------

         Income (loss) before income taxes                         1,192,943          1,132,601         (1,154,972)


Provision (benefit) for income taxes                                 410,000            402,000           (415,370)
                                                             -----------------  -----------------  -------------------

         Net income (loss)                                   $       782,943     $      730,601    $      (739,602)
                                                             =================  =================  ===================
Income per common share;
     Net income (loss) per common share - basic
         and diluted                                         $           .75     $         .66     $          (.67)
                                                             =================  =================  ===================

     Weighted average outstanding shares                           1,045,520         1,100,065           1,111,220
                                                             =================  =================  ===================
</TABLE>
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.


                                       12
<PAGE>
Espey Mfg. & Electronics Corp. and Subsidiary
Consolidated Statements of Changes in Stockholders' Equity
Years Ended June 30, 2000, 1999 and 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                                Accumulated
                                                                                                   Other
                                                                                Capital in     Comprehen-
                                                                               Excess of Par   sive Income     Retained
                                                                Common Stock      Value          (Loss)        Earnings
                                                               -------------- --------------  ------------- -------------
<S>                                                                 <C>        <C>            <C>            <C>
Balance at June 30, 1997                                             504,979   $  10,496,287  $           -  $ 24,148,405

Comprehensive loss:
      Net loss, 1998                                                                                             (739,602)
      Other comprehensive income, net of tax of $3,740                                                7,260

Comprehensive loss

Dividends paid on common stock, $.70 per share                                                                   (777,854)

Tax effect of dividends on unallocated ESOP shares                                                                 40,891

Reduction of common stock subscribed
                                                                  ----------  --------------  -------------  ------------

Balance at June 30, 1998                                             504,979      10,496,287          7,260    22,671,840
                                                                  ----------  --------------  -------------  ------------

Comprehensive income (loss):
      Net income, 1999                                                                                            730,601
      Other comprehensive loss, net of tax benefit of $25,557                                       (45,435)

Comprehensive income

Dividends paid on common stock $.20 per share                                                                    (217,112)

Tax effect of dividends on unallocated ESOP shares                                                                  7,968

Purchase of treasury stock

Reduction of common stock subscribed
                                                                  ----------  --------------  -------------  ------------

Balance at June 30, 1999                                             504,979      10,496,287        (38,175)   23,193,297
                                                                  ----------  --------------  -------------  ------------

Comprehensive income (loss):
      Net income, 2000                                                                                            782,943
     Other comprehensive loss, net of tax benefit of $39,962                                        (69,046)

Comprehensive income

Dividends paid on common stock, $.20 per share                                                                   (208,729)

Tax effect of dividends on unallocated ESOP shares                                                                  7,922

Purchase of treasury stock

Reduction of common stock subscribed
                                                                  ----------  --------------  -------------  ------------

Balance at June 30, 2000                                         $   504,979     $10,496,287   $   (107,221)  $23,775,433
                                                                 ===========  ==============  =============  ============
</TABLE>
                                       13
<PAGE>
<TABLE>
<CAPTION>
                                                                    Common                Treasury Stock          Total
                                                                     Stock         -------------------------   Stockholders'
                                                                   Subscribed         Shares        Amount        Equity
                                                                 -------------     -----------    ----------   -------------
<S>                                                              <C>                <C>         <C>           <C>
Balance at June 30, 1997                                         $  (3,910,636)        403,717  $  (6,638,264) $ 24,600,771


Comprehensive loss:
      Net loss , 1998                                                                                              (739,602)
      Other comprehensive income, net of tax of $3,740                                                                7,260
                                                                                                               ------------
Comprehensive loss                                                                                                 (732,342)

Dividends paid on common stock, $.70 per share                                                                     (777,854)

Tax effect of dividends on unallocated ESOP shares                                                                   40,891

Reduction of common stock subscribed                                   558,662                                      558,662
                                                                 -------------    ------------   -----------   ------------

Balance at June 30, 1998                                            (3,351,974)        403,717    (6,638,264)    23,690,128
                                                                 -------------    ------------   -----------   ------------

Comprehensive income (loss):
      Net income, 1999                                                                                              730,601
      Other comprehensive loss, net of tax benefit of $25,557                                                       (45,435)
                                                                                                               ------------
Comprehensive income                                                                                                685,166

Dividends paid on common stock $.20 per share                                                                      (217,112)

Tax effect of dividends on unallocated ESOP shares                                                                    7,968

Purchase of treasury stock                                                              47,562      (604,226)      (604,226)

Reduction of common stock subscribed                                   558,662                                      558,662
                                                                 -------------    ------------   -----------   ------------

Balance at June 30, 1999                                            (2,793,312)        451,279    (7,242,490)    24,120,586
                                                                 -------------    ------------   -----------   ------------

Comprehensive income (loss):
      Net income, 2000                                                                                              782,943
     Other comprehensive loss, net of tax benefit of $39,962                                                        (69,046)
                                                                                                               ------------
Comprehensive income                                                                                                713,897

Dividends paid on common stock, $.20 per share                                                                     (208,729)

Tax effect of dividends on unallocated ESOP shares                                                                    7,922

Purchase of treasury stock                                                              30,027      (403,472)      (403,472)

Reduction of common stock subscribed                                   558,662                                      558,662
                                                                 -------------    ------------   -----------   ------------

Balance at June 30, 2000                                          $ (2,234,650)        481,306  $ (7,645,962)  $ 24,788,866
                                                                 =============    ============  ============   ============
</TABLE>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.


                                       14
<PAGE>

Espey Mfg. & Electronics Corp. and Subsidiary
Consolidated Statements of Cash Flows
Years Ended June 30, 2000, 1999 and 1998
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                       2000               1999               1998
<S>                                                                 <C>                <C>                <C>
Cash flows from operating activities:
    Net income (loss)                                               $    782,943       $    730,601       $   (739,602)

    Adjustments to reconcile net income (loss) to net cash
       used in operating activities:
       Tax effect of dividends on unallocated ESOP shares                  7,922              7,968             40,891

       Depreciation                                                      472,149            430,111            422,013

       Deferred income tax expense (benefit)                             103,600             85,000           (220,618)

       Change in assets and liabilities
          Decrease (increase) in trade account receivables,
             and other receivables, net                                  299,655         (2,566,142)          (721,148)

          Increase in inventories, net                                (3,784,508)        (2,253,233)          (586,836)

          Decrease (increase) in income tax refund receivable                  -            270,408           (270,408)

          Decrease (increase) in prepaid expenses
             and other current assets                                    (13,450)           (42,491)             3,294

          Increase (decrease) in accounts payable                        256,355             77,397            (37,917)

          Increase (decrease) in accrued salaries, wages and
             commissions                                                (253,830)           (64,363)           475,418

          Increase (decrease) in accrued employee
             insurance costs                                               6,655             21,066             (3,101)

          Increase (decrease) in other accrued expenses                  (37,879)            29,048              3,210

          Increase in vacation accrual                                    69,331            191,161                  -

          Increase (decrease) in payroll and other taxes
             withheld and accrued                                        (46,675)            72,851             (4,204)

          Increase (decrease) in income taxes payable                     61,088             62,987           (148,606)
                                                                    ------------       ------------       ------------

             Net cash used in operating activities                    (2,076,644)        (2,947,631)        (1,787,614)
                                                                    ------------       ------------       ------------


Cash flows from investing activities
    Proceeds from maturity of investment securities                    2,915,161         10,000,000                  -

    Additions to property, plant and equipment                          (782,122)          (507,684)          (300,289)

    Purchases of investment securities                                         -         (6,509,413)        (7,224,749)

    Reduction of common stock subscribed                                 558,662            558,662            558,662
                                                                    ------------       ------------       ------------

             Net cash provided by (used in) investing                  2,691,701          3,541,565         (6,966,376)
             activities                                             ------------       ------------       ------------


Cash flows from financing activities
    Dividends on common stock                                           (208,729)          (217,112)          (777,854)

    Purchase of treasury stock                                          (403,472)          (604,226)                 -
                                                                    ------------       ------------       ------------

             Net cash used in financing activities                      (612,201)          (821,338)          (777,854)
                                                                    ------------       ------------       ------------


Increase (decrease) in cash and cash equivalents                           2,856           (227,404)        (9,531,844)


Cash and cash equivalents, beginning of the year                       2,364,335          2,591,739         12,123,583
                                                                    ------------       ------------       ------------


Cash and cash equivalents, end of the year                          $  2,367,191       $  2,364,335          2,591,739
                                                                    ============       ============       ============


Supplemental disclosures of cash flow information:
    Income taxes paid                                               $    237,500       $    331,045       $    224,262
                                                                    ============       ============       ============

</TABLE>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                       15
<PAGE>



Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------


1.     Summary of Significant Accounting Policies

       Nature of Operations
       Espey  Mfg.  &  Electronics  Corp.  and  Subsidiary  (the  Company)  is a
       manufacturer  of  electronic  equipment  used  primarily  in military and
       industrial applications. The principal markets for the Company's products
       are  companies  that  provide  electronic  support to both  military  and
       industrial  applications.  During 1999, the Company established a foreign
       sales corporation (subsidiary).

       Inventory Valuation and Revenue Recognition
       Raw materials are stated at the lower of cost or market and are valued at
       weighted average cost.

       Inventoried  work relating to contracts in process and work in process is
       valued at actual production cost,  including factory overhead and initial
       set-up costs incurred to date. Work in process represents spare units and
       parts and other  inventory  items  acquired or produced to service  units
       previously sold or to meet anticipated  future orders.  The cost elements
       of contracts in process consist of production costs of goods and services
       currently in process and overhead  relative to those contracts where such
       costs are  reimbursable  under the terms of the contracts.  Provision for
       losses  on  contracts  is made  when  existence  of such  losses  becomes
       evident.  The costs  attributed to units  delivered  under  contracts are
       based on the estimated average cost of all units expected to be produced.
       Certain contracts are expected to extend beyond twelve months.

       Revenue is  recognized  on contracts in the period in which the units are
       delivered and billed (unit-of-delivery method).

       Depreciation
       Depreciation of plant and equipment is computed on a straight-line  basis
       over the estimated useful lives of the assets.

       Income Taxes
       The Company  follows the provisions of Statement of Financial  Accounting
       Standards (SFAS) No. 109, "Accounting for Income Taxes."

       Under the provisions of SFAS No. 109, deferred tax assets and liabilities
       are  recognized  for  the  future  tax   consequences   attributable   to
       differences  between the financial statement carrying amounts of existing
       assets and  liabilities  and their  respective  tax bases.  Deferred  tax
       assets and  liabilities  are measured using enacted tax rates expected to
       apply to taxable income in the years in which those temporary differences
       are  expected to be  recovered  or  settled.  In  addition,  SFAS No. 109
       requires that the tax benefit of tax deductible  dividends on unallocated
       ESOP shares be recorded as a direct addition to retained  earnings rather
       than as a reduction of income tax expense.

       Cash and Cash Equivalents
       Cash and cash  equivalents  consist  of cash in  banks,  certificates  of
       deposit,  money market  accounts,  and U.S.  Treasury bills with original
       maturities of three months or less.

                                       16
<PAGE>


Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

1.     Summary of Significant Accounting Policies, Continued

       Investment Securities

       The Company accounts for its investments in accordance with SFAS No. 115,
       "Accounting for Certain Investments in Debt and Equity Securities."

       Investment  securities at June 30, 2000 and 1999 consist of U.S. Treasury
       securities and corporate equity  securities.  The Company classifies U.S.
       Treasury     securities    and    corporate    equity    securities    as
       available-for-sale.

       Unrealized  holding  gains and  losses,  net of related  tax  effect,  on
       available-for-sale securities are excluded from earnings and are reported
       as a separate component of stockholders' equity until realized.  Realized
       gains and losses for  securities  classified  as  available-for-sale  are
       included in earnings and are determined using the specific identification
       method. Interest income is recognized when earned.

       Stock-Based Compensation
       The  intrinsic  value  method  of  accounting  is  used  for  stock-based
       compensation  plans. Under the intrinsic value method,  compensation cost
       is  measured as the excess,  if any,  of the quoted  market  price of the
       stock at the  grant  date  over the  amount  of an  employee  must pay to
       acquire the stock.

       Per Share Amounts
       Basic  earnings per share  excludes  dilution and is computed by dividing
       income available to common shareholders by the weighted average number of
       common  shares  outstanding  for the period.  Diluted  earnings per share
       reflects the  potential  dilution that could occur if securities or other
       contracts to issue Common Stock were  exercised or converted  into Common
       Stock or resulted in the issuance of Common Stock that then shared in the
       earnings of the entity.

       Comprehensive Income
       In 1999, the Company adopted Statement of Financial  Accounting Standards
       (SFAS)  No.  130,  "Reporting   Comprehensive   Income."  This  statement
       establishes  rules for the  reporting  of  comprehensive  income  and its
       components.  Comprehensive  income  consists of net income and unrealized
       gains  (losses) on securities  available for sale and is presented in the
       Statement  of  Changes in  Stockholders'  Equity.  Prior  year  financial
       statements   have  been  reclassified  to conform  to  the  SFAS  No. 130
       requirements. Components of other comprehensive income include unrealized
       gains (losses) on securities  available for sale.  There were no realized
       gains  (losses)   included  in  net  income  requiring   reclassification
       adjustments to other comprehensive income.

       Use of Estimates
       The  preparation  of financial  statements in conformity  with  generally
       accepted accounting  principles requires management to make estimates and
       assumptions that affect the reported amount of assets and liabilities and
       disclosure  of  contingent  assets  and  liabilities  at the  date of the
       financial  statements  and the reported  amounts of revenues and expenses
       during the  reporting  period.  Actual  results  could  differ from those
       estimates.

       Investment Tax Credits
       Investment  tax credits are  accounted  for as a reduction  of income tax
       expense in the year taxes payable are reduced.


                                       17
<PAGE>


Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

1.     Summary of Significant Accounting Policies, Continued

       New Accounting Pronouncements
       In June 1998, the Financial  Accounting  Standards  Board Issued SFAS No.
       133,  "Accounting  for Derivative  Instruments  and Hedging  Activities,"
       which  establishes  accounting  and reporting  standards  for  derivative
       instruments,  including certain derivative  instruments embedded in other
       contracts, and for hedging activities. SFAS No. 133 has subsequently been
       amended by SFAS No. 137,  issued June 1999,  which  delays the  effective
       date for  implementation  of SFAS No. 133 until fiscal quarters of fiscal
       years  beginning  after June 15, 2000.  Management  believes SFAS No. 133
       will not impact the Company's consolidated financial statements.

       In December 1999, the SEC issued Staff Accounting  Bulletin No. 101 ("SAB
       101"), "Revenue Recognition in Financial  Statements." SAB 101 summarizes
       certain of the SEC's  views in  applying  generally  accepted  accounting
       principles to revenue recognition in financial statements. The Company is
       required to adopt SAB 101 in the quarter ended June 30, 2001.  Management
       does not expect the adoption of SAB 101 to have a material  effect on the
       Company's financial condition or results of operations.

       In March 2000,  the  Financial  Accounting  Standards  Board  issued FASB
       Interpretation  No. 44 ("FIN 44"),  "Accounting for Certain  Transactions
       Involving Stock  Compensation - an Interpretation of APB Opinion No. 25."
       FIN 44 clarifies the  application  of APB Opinion No. 25 and, among other
       issues  clarifies the  definition of an employee for purposes of applying
       APB Opinion No. 25; the criteria for determining whether a plan qualifies
       as a  non-compensatory  plan;  the  accounting  consequences  of  various
       modifications  to the terms of previously  fixed stock options or awards;
       and the  accounting  for an  exchange of stock  compensation  awards in a
       business  combination.  FIN 44 is  effective  July 1, 2000,  but  certain
       conclusions  in FIN 44 cover  specific  events that occurred after either
       December  15,  1998 or January  12,  2000.  The  Company  has applied the
       applicable  provisions of FIN 44 which did not have a material  effect on
       the Company's consolidated financial statements.



                                       18
<PAGE>
Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

2.     Investment Securities

       Investment  securities at June 30, 2000,  consist of U.S.  Treasury bills
       and   corporate    equity    securities,    which   are   classified   as
       available-for-sale  securities,  and recorded at market value.  The cost,
       gross unrealized  holding gains, gross unrealized holding losses and fair
       value of available-for-sale securities by major security type at June 30,
       2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                             Gross Unrealized   Gross Unrealized
                 2000               Cost       Holding Gains     Holding Losses   Fair Value
                                 ----------  ----------------    --------------  -----------
<S>                              <C>                <C>          <C>             <C>
U.S. Treasury bills              $        -         $     -      $        -     $         -

Corporate equity securities         819,005               -         169,005         650,000
                                 ----------      ----------      ----------      ----------
                                 $  819,005         $     -      $  169,005      $  650,000
                                 ==========      ==========      ==========      ==========

                 1999
U.S. Treasury bills              $2,915,161         $     -      $        -      $2,915,161

Corporate equity securities         819,005               -          59,997         759,008
                                 ----------      ----------      ----------      ----------
                                 $3,734,166         $     -      $   59,997      $3,674,169
                                 ==========      ==========      ==========      ==========
</TABLE>
       The U.S. Treasury bills classified as available-for-sale at June 30, 1999
       matured during 2000. The change in unrealized holding losses on available
       for sale investment securities net of tax was $69,046 and $45,435 in 2000
       and 1999, respectively.


3.     Contracts in Process

       Contracts in process at June 30, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                                        2000               1999

<S>                                                                 <C>               <C>
          Gross contract value                                      $ 29,128,352      $ 16,961,238

          Costs related to contracts in process, net of progress
          payments of $537,468 in 2000 and $-0- in 1999             $ 10,889,930      $ 7,856,607
</TABLE>

       Included in costs  relating to  contracts in process at June 30, 2000 and
       1999 are costs of  $748,722   and  $298,814,  respectively,  relative  to
       contracts  that may not be completed  within the ensuing year.  Under the
       unit-of-delivery  method,  the related sale and cost of sales will not be
       reflected in the  statement of income until the units under  contract are
       shipped.

                                       19
<PAGE>

Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------


4.     Property, Plant and Equipment

       A summary of the original  cost of property,  plant and equipment at June
       30, 2000 and 1999 is as follows:


                                                        2000             1999

          Land                                      $     50,000    $     50,000
          Buildings and improvements                   3,992,041       3,952,869
          Machinery and equipment                      8,755,010       8,477,396
          Furniture, fixtures and office equipment       367,992         371,560
                                                    --------------- ------------

                                                    $ 13,165,043    $ 12,851,825
                                                    =============== ============

       Estimated useful lives of depreciable assets are as follows:

          Buildings and improvements                                15-20 years
          Machinery and equipment                                   10 years
          Furniture, fixtures and office equipment                  10 years


5.     Line of Credit

       At June 30, 2000, the Company has an available unused Line of Credit with
       a financial  institution.  The  agreement  provides  that the Company may
       borrow up to  $3,000,000.  The line  generally  provides  for interest at
       prime minus fifty basis points.


6.     Research and Development Costs

       Research and  development  costs charged to  operations  during the years
       ended June 30, 2000, 1999 and 1998 were approximately $255,000, $291,000,
       and $244,000, respectively.


7.     Pension Expense

       Under terms of a negotiated  union contract,  the Company is obligated to
       make  contributions  to a  union-sponsored  defined  benefit pension plan
       covering  eligible  employees.  Such  contributions  are based upon hours
       worked at a specified  rate and  amounted to $88,660 in 2000,  $64,829 in
       1999, and $54,269 in 1998.


                                       20
<PAGE>

Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

8.     Provision (Benefit) for Income Taxes

       A summary of the  components of the provision  (benefit) for income taxes
       for the years ended June 30, 2000, 1999 and 1998 is as follows:

<TABLE>
<CAPTION>
                                                            2000         1999            1998
<S>                                                    <C>           <C>            <C>
          Current tax expense (benefit) - federal      $    295,400  $    313,000   $   (195,179)
          Current tax expense - state                        11,000         4,000            427
          Deferred tax expense (benefit)                    103,600        85,000       (220,618)
                                                       ------------- -------------- -------------

                                                       $    410,000  $    402,000   $   (415,370)
                                                       ============= ============== =============
</TABLE>


       Deferred  income  taxes  reflect  the impact of  "temporary  differences"
       between  the amount of assets and  liabilities  for  financial  reporting
       purposes and such  amounts  measured by tax laws and  regulations.  These
       "temporary differences" are determined in accordance with SFAS No. 109.

       The combined U.S.  federal and state effective income tax rates of 34.4%,
       35.5% and (36.0)% for 2000,  1999 and 1998,  respectively,  differed from
       the statutory U.S. federal income tax rate for the following reasons:

                                                2000       1999       1998
        U.S. federal statutory income tax rate   34%        34%      (34.0)%
        Increase (reduction) in rate resulting
        from:
           Dividends received deduction         (1.2)     (0.5)          -
           State franchise tax, net of federal
               income tax benefit                1.7       2.3        (2.4)
           Foreign sales corporation benefit    (1.0)     (1.1)          -
           Other                                  .9       0.8          .4
                                                -----     ------     -----
        Effective tax rate                      34.4%     35.5%      (36.0)%
                                                =====     ======     =====



                                       21
<PAGE>

Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------


8.     Provision (Benefit) for Income Taxes, Continued

       For the years ended June 30, 2000 and 1999 deferred income tax expense of
       $103,600 and $85,000, respectively,  result from the changes in temporary
       differences for each year. The tax effects of temporary  differences that
       give rise to deferred tax assets and deferred tax  liabilities as of June
       30, 2000 and 1999 are presented as follows:
<TABLE>
<CAPTION>

                                                                    2000          1999
<S>                                                               <C>           <C>
       Deferred tax assets:
          Inventory - differences in valuation methods            $150,945      $161,194
          Unrealized loss on available-for-sale investment
          securities                                                61,779        25,557
          Common stock subscribed - due to difference in
             interest recognition                                  407,791       449,891
          Non-deductible accruals                                  152,100       154,810
          Other                                                     16,695        13,353
                                                                  --------      --------

            Total deferred tax assets                              789,310       804,805
                                                                  --------      --------

       Deferred tax liabilities:
          Property, plant and equipment - principally due to
            differences in depreciation methods                    401,275       407,524
          Inventory - effect of uniform capitalization              81,810        27,417
                                                                  --------      --------

            Total deferred tax liabilities                         483,085       434,941
                                                                  --------      --------

       Net deferred tax asset                                     $306,225      $369,864
                                                                   ========     ========
</TABLE>

       In  assessing  the  realizability  of  deferred  tax  assets,  management
       considers  whether it is more likely than not that some portion or all of
       the  deferred tax assets will be realized.  The ultimate  realization  of
       deferred tax assets is dependent  upon the  generation of future  taxable
       income  during the periods in which those  temporary  differences  become
       deductible.  Management  considers the schedule  reversal of deferred tax
       liabilities, projected future taxable income, and tax planning strategies
       in making this  assessment.  Based upon the level of  historical  taxable
       income and  projection for future taxable income over the period in which
       the deferred tax assets are  deductible,  management  believes it is more
       likely  than not that the  Company  will  realize  the  benefits of these
       temporary differences without consideration of a valuation allowance.


9.     Common Stock and Income Per Share

       Income per share  information is based on the weighted  average number of
       common shares  outstanding  during the respective  periods.  The weighted
       average number of shares used in the  computation  was 1,045,520 in 2000,
       1,100,065 in 1999, and 1,111,220 in 1998.


                                      22
<PAGE>

Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------


10.    Significant Customers

       A  significant  portion of the  Company's  business is the  production of
       military  and  industrial  electronic  equipment  for  use  by  the  U.S.
       Government and its agencies and certain  industrial  customers.  Sales to
       two domestic  customers  accounted for 29.7% and 26.3%,  respectively  of
       total  sales in 2000.  Sales to two  domestic  customers  and one foreign
       customer  accounted for 37.6%,  25.4% and 11.2%,  respectively,  of total
       sales in 1999.  Sales to three  domestic  customers  accounted for 47.9%,
       14.7% and 12.5%, respectively, of total sales in 1998.

       Export sales aggregated approximately $4,200,000 and $2,500,000 for years
       ended June 30, 2000 and 1999, respectively. Export sales in 1998 were not
       significant.


11.    Stock Rights Plan

       The Company has a  Shareholder  Rights Plan which expires on December 31,
       2009. Under this plan, common stock purchase rights were distributed as a
       dividend  at the  rate of one  right  for  each  share  of  common  stock
       outstanding  as of or issued  subsequent  to April 14,  1989.  Each right
       entitles the holder  thereof to buy one-half share of common stock of the
       Company at an exercise price of $50 per share subject to adjustment.  The
       rights  are  exercisable  only if a person or group  acquires  beneficial
       ownership  of 15% or more of the  Company's  common  stock or commences a
       tender or exchange offer which, if consummated, would result in the offer
       or,  together  with all  affiliates  and  associates  thereof,  being the
       beneficial owner of 15% or more of the Company's common stock.

       If a 15% or larger  shareholder  should  engage in  certain  self-dealing
       transactions  or a merger  with the  Company in which the  Company is the
       surviving  corporation  and its shares of common stock are not changed or
       converted  into equity  securities of any other person,  or if any person
       were to  become  the  beneficial  owner  of 15% or more of the  Company's
       common stock,  than each right not owned by such  shareholder  or related
       parties of such  shareholder (all of which will be void) will entitle its
       holder to purchase, at the right's then current exercise price, shares of
       the Company's  common stock having a value of twice the right's  exercise
       price.  In  addition,  if the Company is involved in any other  merger or
       consolidation  with,  or sells 50% or more of its assets or earning power
       to, another  person,  each right will entitle its holder to purchase,  at
       the right's then current  exercise price,  shares of common stock of such
       other person having a value of twice the right's exercise price.

       The  Company  generally  is entitled to redeem the rights at one cent per
       right at any time  until  the  15th day (or 25th day if  extended  by the
       Company's Board of Directors)  following public  announcement  that a 15%
       position has been  acquired or the  commencement  of a tender or exchange
       offer which, if consummated,  would result in the offer or, together with
       all affiliates and associates thereof,  being the beneficial owner of 15%
       or more of the Company's common stock.



                                       23
<PAGE>

Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------


12.    Employee Stock Ownership Plan

       In 1989, the Company  established an Employee Stock Ownership Plan (ESOP)
       for eligible  non-union  employees.  The ESOP used the proceeds of a loan
       from the Company to purchase 316,224 shares of the Company's common stock
       for approximately $8.4 million and the Company contributed  approximately
       $400,000  in 1989 to the ESOP which was used by the ESOP to  purchase  an
       additional  15,000 shares of the Company's common stock.  Since inception
       of the  Plan,  the ESOP  has sold or  distributed  66,628  shares  of the
       Company's common stock to pay benefits to participants.  At June 30, 2000
       and  1999,  the  ESOP  held  a  total  of  281,185  and  272,692  shares,
       respectively, of the Company's common stock, of which 197,137 and 167,632
       shares, respectively, were allocated to participants in the Plan.

       The loan from the Company to the ESOP is repayable in annual installments
       of $1,039,605,  including  interest,  through June 30, 2004.  Interest is
       payable at a rate of 9% per annum. The Company's receivable from the ESOP
       is  recorded  as common  stock  subscribed  in the  accompanying  balance
       sheets.  The Company  recognizes the principal payments of the ESOP debt,
       on a  straight-line  basis  over the term of the  note,  as  compensation
       expense.

       Each year, the Company makes  contributions to the ESOP which are used to
       make loan payments. With each loan payment, a portion of the common stock
       is allocated to participating  employees.  For the periods ended June 30,
       2000 and 1999, 21,012 shares were allocated to participants. In 2000, the
       Company's  required  contribution  of  $1,039,605  was reduced by $21,012
       which represents the dividends paid on the unallocated  ESOP shares.  The
       resulting  payment  of  $1,018,593   includes   $537,650   classified  as
       compensation  expense.  In 1999, the Company's  required  contribution of
       $1,039,605 was reduced by $25,214, which represents the dividends paid on
       the unallocated ESOP shares. The resulting payment of $1,014,319 includes
       $533,449  classified  as  compensation  expense.  In 1998,  the Company's
       required  contribution  of  $1,039,605  was  reduced by  $102,952,  which
       represents  the  dividends  paid  on the  unallocated  ESOP  shares.  The
       resulting   payment  of  $936,646   includes   $455,704   classified   as
       compensation  expense. All shares purchased by the ESOP are considered to
       be outstanding for the income per share computations.


13.    Stock Options

       During fiscal 2000, the Board of Directors and shareholders approved, the
       2000  Stock  Option  Plan  (the  Plan).  Under the  Plan,  incentive  and
       non-qualified  stock options will be granted to purchase shares of common
       stock of the  Company.  As of June 30,  2000 the Plan was  authorized  to
       issue 150,000 shares of the Company's common stock.

       Options  granted  under the Plan have been  granted  at not less than the
       fair market value at the grant date and vest over a maximum period of ten
       years.

       On March 1, 2000,  11,500 stock options were granted under the plan which
       vest over two years. As of June 30, 2000 no options were forfeited.


                                       24
<PAGE>

Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------


13.    Stock Options, Continued

       The Company has elected to apply Accounting  Principles Board Opinion No.
       25,  "Accounting  for Stock Issued to  Employees,"  in accounting for the
       Plan. Under APB 25, no compensation  expense has been recognized in 2000.
       Had  compensation  cost  and  fair  value  been  determined  pursuant  to
       Statement of Financial Accounting Standards No. 123 (FAS 123) "Accounting
       for  Stock-Based  Compensation",  net income  would have  decreased  from
       $782,943  to  $778,296.  The  options  outstanding  did  not  create  any
       difference  between  basic and diluted  earnings  per share.  The initial
       impact  of  FAS  123  on  pro  forma   earnings  per  share  may  not  be
       representative  of the effect on income in future years  because  options
       vest over several  years and  additional  option  grants may be made each
       year.

       The  weighted  average  fair value of options  granted  under FAS 123 was
       $3.71 in 2000. The fair value of options granted is estimated on the date
       of grant using the Black-Scholes  option-pricing model with the following
       weighted average assumptions used for the grants: dividend yield of 2.5%;
       expected  volatility  of 16.4% ;  risk-free  interest  rates  of 6%;  and
       expected life of 5 years.


14.    Financial Instruments/Concentration of Credit Risk

       The carrying amounts of financial instruments, including cash, short-term
       investments, investment securities, accounts receivable, accounts payable
       and  accrued  expenses,  approximated  fair value as of June 30, 2000 and
       1999 because of the relatively short maturities of these instruments.

       Financial   instruments   that   potentially   subject   the  Company  to
       concentrations  of  credit  risk  consist  principally  of cash  and cash
       equivalents and accounts receivable.  The Company maintains cash and cash
       equivalents   with  various   financial   institutions.   At  times  such
       investments  may be in excess of FDIC insurance  limits.  As disclosed in
       Note  10,  a  significant  portion  of  the  Company's  business  is  the
       production of military and industrial electronic equipment for use by the
       U.S.  Government and its agencies and certain industrial  customers.  The
       related accounts  receivable  balance  represented by three customers was
       64% and 93.2% of the Company's total trade accounts receivable balance at
       June 30, 2000 and 1999, respectively.

       Although the Company's exposure to credit risk associated with nonpayment
       of these  balances is affected by  conditions or  occurrences  within the
       U.S. Government,  the Company believes that its trade accounts receivable
       credit risk  exposure is limited.  The Company  performs  ongoing  credit
       evaluations   of  its  customers'   financial   conditions  and  requires
       collateral,  such as progress  payments,  in certain  circumstances.  The
       Company establishes an allowance for doubtful accounts based upon factors
       surrounding the credit risk of specific customers,  historical trends and
       other information.



                                       25
<PAGE>

Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------


15.    Commitments

       The Company under an operating  lease  agreement  rents a sales office in
       Great Neck,  New York.  This lease,  which  expires on September 9, 2001,
       requires future minimum lease payments of $14,222 payable as follows:

          Year ending June 30,
             2001                                                      12,190
             2002                                                       2,032
                                                          ----------------------

                                                          $            14,222
                                                          ======================

       Rent  expense  for the  years  ended  June  30,  2000,  1999 and 1998 was
       $12,190, $18,674, and $12,398, respectively.


16.    Other Costs

       During 1999 the Company  implemented  a management  succession  plan that
       involves  agreements  with five members of management.  These  agreements
       require the Company to pay certain amounts for a period of  approximately
       two years after the employees'  resignations from the Company in exchange
       for the  employees'  agreements  to be  available  to the  Company  on an
       as-needed  basis.  Since  there is no  minimum  service  required  by the
       agreements,  the Company accrued for these payments on the effective date
       of the plan as the  employees  are eligible for the benefit at that date.
       At June 30,  1999,  approximately  $306,000  was  accrued  to record  the
       liabilities  relating to these  agreements.  At June 30,  2000,  $142,000
       remained to be paid to these individuals.


17.    Related Parties

       The  Company  paid a law firm in which a  director  of the  Company  is a
       partner,  a total of $42,000 for legal  services  during each fiscal year
       ended June 30,  2000,  1999 and 1998.  The Company paid a director of the
       Company,  a total of  approximately  $15,975 and  $15,600 for  consulting
       services   during  the  fiscal   year  ended  June  30,  2000  and  1999,
       respectively.


18.    Quarterly Financial Information (Unaudited)

<TABLE>
<CAPTION>
                                                     First            Second            Third           Fourth
                                                    Quarter           Quarter          Quarter         Quarter
<S>                                             <C>               <C>              <C>             <C>
       2000
          Net sales                             $     3,298,980   $     3,412,424  $     3,289,816 $     4,718,598
          Gross profit                                  414,586           493,051          771,435       1,056,862
          Net income (loss)                              39,593            47,092          263,548         432,710

       Net income (per share - basic
          and diluted)                                    0.04              0.04              0.25           0.42
</TABLE>



                                       26
<PAGE>

Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------


18.    Quarterly Financial Information (Unaudited), Continued

<TABLE>
<CAPTION>
<S>                                             <C>               <C>              <C>             <C>
       1999
          Net sales                             $     2,523,984   $     3,134,377  $    3,089,547  $     4,881,784
          Gross profit                                  398,705           625,453         451,815        1,061,703
          Net income                                     84,042           166,109          99,723          380,727

       Net income (per share - basic
          and diluted)                                    0.08              0.15              0.9             0.34

       1998
          Net sales                             $     2,503,584   $     3,549,697  $    2,240,347  $     2,499,944
          Gross profit                                  428,603           401,300        (457,608)         313,658
          Net income (loss)                              45,009            24,955        (507,426)        (302,140)

       Net income (loss) per share - basic
          and diluted                                     0.04              0.02            (0.46)         (0.27)
</TABLE>


                                       27
<PAGE>

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant.

Identification of Directors

                       Date Present Term         Other Positions
                       Expires and Period        and Offices Held
Name                   Served as Director        With Registrant         Age
----                   ------------------        ---------------         ---

Paul J. Corr           Annual Meeting in         None                     56
                       December 2002
                       Director since 1992

William P. Greene      Annual Meeting in         Vice President of        70
                       December 2001             Operations
                       Director since 1992

Carl Helmetag          Annual Meeting in         None                     52
                       December 2000
                       Director since 1999

Barry Pinsley          Annual Meeting in         None                     58
                       December 2002
                       Director since 1994

Howard Pinsley         Annual Meeting in         President and Chief      60
                       December 2000             Executive Officer
                       Director since 1992

Alvin A. Sabo          Annual Meeting in         None                     57
                       December 2000
                       Director since 1999

Seymour Saslow         Annual Meeting in         None                     79
                       December 2001
                       Director since 1992

Gerald B.H. Solomon    Annual meeting in         None                     70
                       December 2001
                       Director since 1999

Michael W. Wool        Annual Meeting in         None                     54
                       December 2002
                       Director since 1990


                                       28
<PAGE>



Identification of Executive Officers
<TABLE>
<CAPTION>

                       Positions and
                       Offices Held              Period Served As
Name                   With Company              Executive Officer                 Age
----                   ------------------        ---------------                   ---

<S>                    <C>                       <C>                                <C>
Howard Pinsley         President and             Served as Vice President-          60
                       Chief Executive           Special Power Supplies
                       Officer                   from April 3, 1992 until
                                                 being elected as Executive
                                                 Vice President on December
                                                 6, 1997.  Elected to present
                                                 office on June 9, 1998

William P. Greene      Vice President-           Since February 1, 1999             70
                       Operations

John J. Pompay, Jr.    Vice President-           Since December 6, 1996             65
                       Marketing and Sales

David A. O'Neil        Treasurer & Principal     Since January 4, 2000,             35
                       Financial Officer         Controller and Assistant
                                                 Treasurer from December 11
                                                 To January 3, 2000

Garry M. Jones         Assistant Treasurer       Since August 4, 1988,              60
                       & Principal Accounting    Principal Financial
                       Officer                   Officer from August 4,
                                                 1988 to September 10, 1993

Peggy A. Murphy        Secretary                 Since December 11, 1998            42

</TABLE>



The terms of office of Mr. Howard Pinsley,  Mr. William P. Greene,  Ms. Peggy A.
Murphy,  Mr.  David A.  O'Neil and Mr.  Garry M. Jones are until the next annual
meeting of the Board of Directors unless  successors are sooner appointed by the
Board  of  Directors.  The  term of  office  of Mr.  Pompay  is  subject  to the
provisions  of  an  agreement  between  him  and  the  Company.  See  "Executive
Compensation-Employment  Contracts and  Termination  of Employment and Change in
Control Agreements."

Family Relationships

Barry Pinsley and Howard Pinsley are cousins. Herbert Potoker (former Treasurer)
and Howard Pinsley are cousins.

Business Experience of Directors and Officers

Paul J.  Corr is a  Certified  Public  Accountant  and has been a  Professor  of
Business at Skidmore College in Saratoga Springs,  New York since 1981. Mr. Corr
currently  holds  the  position  of  Associate  Professor.  Mr.  Corr  is also a
shareholder in the Latham, New York accounting firm of Rutnik, Matt & Corr, P.C.

William P. Greene,  D.B.A.  prior to joining the Company's  management  team was
Vice President of Finance for ComCierge,  LLC, San Diego,  CA since August 1997.
Prior  to that  position,  Dr.  Greene  held  the  position  of  Vice  President
Operations for Bulk Materials International, Newtown, CT from 1993 to July 1997.
From  1991  to  1993,  Dr.  Greene  was  Associate   Professor  of  Finance  and
International Business at Pennsylvania State University Kutztown,  Kutztown, PA.
From 1985 to 1990,  he was  Associate  Dean of the  School of  Business,  United
States  International  University,  San  Diego,  CA.  From 1992 to 1995,  he was
Chairman of the Department of Business,  Skidmore College, Saratoga Springs, NY.
Prior to that time,  he had been  employed as an officer with several  financial
institutions.


                                       29
<PAGE>


Barry  Pinsley is a Certified  Public  Accountant  who for five years acted as a
consultant  to the  Company  prior  to his  election  as Vice  President-Special
Projects on March 25, 1994. On December 6, 1997,  Mr. Pinsley was elected to the
position of Vice President-Investor Relations and Human Resources, from which he
resigned on June 9, 1998.  Mr.  Pinsley has been a practicing  Certified  Public
Accountant in Saratoga Springs, New York since 1975.

Howard  Pinsley  for more than the past  five  years  has been  employed  by the
Company on a full-time  basis as a Program  Director prior to being elected Vice
President-Special  Power  Supplies on April 3, 1992.  On  December 6, 1996,  Mr.
Pinsley was elected to the position of Executive Vice President.  On June 9,1998
he was  elected to the  positions  of  President  and Chief  Operating  Officer.
Subsequently he also became the Chief Executive Officer.

Seymour Saslow had been Senior Vice President  since December 6, 1996.  Prior to
being   elected  to  Senior  Vice   President,   Mr.   Saslow   served  as  Vice
President-Engineering  since April 3, 1992. Mr. Saslow  resigned as an executive
officer effective December 31, 1999.

Gerald B.H.  Solomon is currently  President and Chief Executive  Officer of the
Solomon Group. The Solomon Group is an  international  consulting firm providing
strategic  advice  and  counsel to  corporations  worldwide.  Prior to  becoming
President of the Solomon Group he retired from the United  States Congress where
he served as a congressman from New York State for twenty years.

Michael W. Wool is an attorney in private practice and a partner in the law firm
of Langrock,  Sperry & Wool in  Burlington,  Vermont for more than the past five
years.

Alvin O. Sabo is an  attorney  engaged  in  private  practice  of law and Senior
Partner of the law firm of Donohue, Sabo, Varley & Armstrong, P.C. in Albany, NY
since 1980. Prior to that position, he was Assistant Attorney General,  State of
New York, Department of Law for eleven years.

Carl  Helmetag is currently  President and CEO of UVEX Inc, in  Providence,  RI.
From  1996 to 1999,  he was  President  and CEO of HEAD  USA Inc.  Prior to that
position,  Mr.  Helmetag was Executive  Vice  President,  and then  President at
Dynastar Inc.  from 1978 to 1996. He is an MBA graduate from the Wharton  School
of Business, University of Pennsylvania.

Peggy Murphy is Secretary of the Company since  December 11, 1998.  She has been
employed by the Company as Director of Human Resources since October 1998.

David A. O'Neil is currently the Treasurer  and Principal  Financial  Officer of
the Company.  Mr. O'Neil is a Certified Public Accountant who joined the Company
as Controller and Assistant Treasurer on November 16, 1998. Prior to joining the
Company Mr. O'Neil was a Senior Manager at the accounting firm of KPMG LLP.

John J. Pompay,  Jr. for more than the past five years has been  employed by the
Company on a full-time  basis as Director of Marketing  and Sales prior to being
elected Vice President-Marketing and Sales on December 6, 1996.

Garry M.  Jones  for more  than the past five  years  has been  employed  by the
Company  on a  full-time  basis as  Senior  Accountant  prior  to being  elected
Assistant Treasurer and Principal Accounting Officer on August 4, 1988.


Directorships

None of the directors  holds a directorship in any other company with a class of
securities  registered  pursuant to Section 12 of the Exchange Act or subject to
the  requirements  of Section 15(d) of that Act or any company  registered as an
Investment company under the Investment Company Act of 1940.

                                       30
<PAGE>


Legal Proceedings

None of the directors or executive  officers of the Company were involved during
the past five years in any legal  proceedings  specified  under  Item  401(f) of
Regulation S-K.


Item 11.          Executive Compensation.

Executive Compensation Table

The following table  summarizes the annual  compensation  for each of the fiscal
years  ended June 30,  2000,  1999,  and 1998  received by the  Company's  Chief
Executive  Officer and the other highest paid executive  officers of the Company
that received over $100,000 in total compensation as of June 30, 2000.


                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                     Long Term
                                                                   Compensation
                                                                   ------------
                                                                    Securities
Name and                      Fiscal      Annual                    Underlying           All Other
Principal Position             Year       Salary         Bonus      Options (#)       Compensation(1)
------------------             ----       ------         -----     ------------       ---------------
<S>                            <C>       <C>            <C>            <C>                <C>
Howard Pinsley                 2000      $160,520       $25,000        1,500              $ 8,623
President and                  1999      $127,700       $     0            0              $11,492
Chief Executive Officer        1998      $120,125       $25,000            0              $15,961

Seymour Saslow (2)             2000      $111,150       $25,000            0              $ 1,237
Senior Vice President          1999      $124,625       $     0            0              $10,568
                               1998      $119,625       $25,000            0              $15,024

William P. Greene              2000      $116,270       $     0          600              $ 6,414
Vice President of              1999      $ 37,650       $     0            0              $     0
Operations (3)

John J. Pompay, Jr.            2000      $237,816       $20,000          600              $ 8,822
Vice President-Sales           1999      $189,399       $     0            0              $ 8,679
                               1998      $176,297       $     0            0              $12,314

</TABLE>



(1)    Represents (a) the cash and market value of the shares  allocated for the
       respective  fiscal years under the Company's  ESOP to the extent to which
       each named  executive  officer is vested,  and (b) directors' fees except
       for Mr. Pompay through April 1, 1999.  Effective  April 1, 1999 employees
       of the  Company  that also serve on the Board do not  receive  director's
       fees.

(2)    Represents wages as both an executive officer and non-executive  officer.
       Mr. Saslow resigned as Senior Vice President on December 31, 1999.

(3)    Mr. Greene's employment with the Company commenced in February 1999.


                                       31
<PAGE>


                          OPTION GRANTS IN FISCAL 2000
<TABLE>
<CAPTION>


                                                                                     Potential
                                                                                    Realizable
                                                                                     Value at
                                                                                  Assumed Annual
                      Number of     Percent                                       Rates of Stock
                     Securities    of Total                                     Price Appreciation
                     Underlying     Options                                     for Option Term (1)
                       Options    Granted to     Exercise       Expiration      ------------------
Name                   Granted     Employees       Price           Date          5%($)       10%($)
---------------       ---------    --------      --------       -----------     ------       ------
<S>                     <C>           <C>          <C>          <C>   <C>       <C>          <C>
Howard Pinsley          1,500         13%          13.25        03/01/2010      12,495       31,680

William P. Greene         600          5%          13.25        03/01/2010       4,998       12,672

John J. Pompay Jr.        600          5%          13.25        03/01/2010       4,998       12,672

David A. O'Neil           600          5%          13.25        03/01/2010       4,998       12,672
</TABLE>



(1) Amounts  reflect  certain  assumed  rates of  appreciation  set forth in the
Commission's executive  compensation  disclosure rules. Actual gains, if any, on
stock option exercises will depend on future performance of the Common Stock. No
assurance  can be made  that the  amounts  reflected  in these  columns  will be
achieved.  The values in these columns  assume that the fair market value on the
date of grant of each option was equal to the exercise price thereof.

In accordance  with the 2000 Stock Option Plan the above options are exercisable
anytime after March 1, 2002. Accordingly, no options were exercised by the above
named executive officers in fiscal 2000.


Insurance

The  executive  officers  and  directors  of the Company can elect to be covered
under the company  sponsored  health plans which do not discriminate in favor of
the officers or directors  of the Company and which are  available  generally to
all  employees.  In addition,  the executive  officers are covered under a group
life plan, which does not discriminate, and is available to all employees.

The Company maintains  insurance  coverage,  as authorized by Section 727 of the
New York  Business  Corporation  Law,  providing  for (a)  reimbursement  of the
Company  for  payments  it makes to  indemnify  officers  and  directors  of the
Company,  and (b) payment on behalf of officers and directors of the Company for
losses, costs and expenses incurred by them in any actions.

Employee Retirement Plan and Trust

Under the  Company's  ESOP,  approved by the Board of Directors on June 2, 1989,
effective  July 1, 1988, all non-union  employees of the Company,  including the
Company's executive and non-executive officers are eligible to participate.  The
ESOP is a non-contributory  plan which is designed to invest primarily in shares
of common stock of the Company.  Reference is made to, and there is incorporated
by reference,  the  description  of the ESOP, its  implementation  and pertinent
documents  attached as exhibits in the  Company's  Form 8-K dated June 16, 1989,
filed with the Commission on June 20, 1989, and to the amendments  thereto filed
as an Exhibit  to the 10-K  Report  for the  fiscal  year  ended June 30,  1991.
Certain technical  amendments not considered  material were adopted effective as
of June 30, 1994.

Of the 197,137 shares of common stock of the Company  allocated to  participants
of the ESOP as of June 30, 2000, 451 shares were allocated to William P. Greene,
7,251 shares were allocated to John J. Pompay,  Jr., 6,843 shares were allocated
to Howard  Pinsley,  6,170 shares were allocated to Seymour  Saslow,  433 shares
were  allocated  to David A.  O'Neil and 2,703  shares were  allocated  to Barry
Pinsley.


                                       32
<PAGE>


Compensation of Directors

The Company's standard  arrangement  compensates each director of the Company an
annual  fee in the  amount  of  $10,000  for  being a  member  of the  Board  of
Directors.  Each Director that also serves as a member of the Audit Committee is
compensated an additional  annual fee of $5,000.  These fees are paid monthly to
the  Directors.  Barry  Pinsley  was paid  $15,975  for  additional  services in
connection  with his  duties as a director  for the  fiscal  year ended June 30,
2000.  Executive officers that also serve on the Company's Board of Directors do
not receive director's fees.

Directors are also eligible to receive stock options under the 2000 Stock Option
Plan at the discretion of the stock option committee. The stock option committee
consists of three appointed board members. For the year ended June 30, 2000, the
following options were granted to the Board of Directors in accordance with this
Plan.

Name                    Number of Options  Exercise Price
----                    -----------------  --------------
Seymour Saslow                700             $13.25

Barry Pinsley                 700              13.25

Michael W. Wool               300              13.25

Paul J. Corr                  300              13.25

Alvin A. Sabo                 200              13.25

Carl Helmetag                 200              13.25

Gerald B.H. Solomon           200              13.25


The above  options  are  exercisable  anytime  after March 1, 2002 and expire on
March 1, 2010.


Employment Contracts and Termination of Employment and
Change in Control Agreements

The Company has an  employment  contract  with John J. Pompay Jr. in  connection
with  his  duties  as Vice  President-Marketing  and  Sales.  The  contract  was
effective as of January 4, 1999 and terminated on December 31, 1999 subject to a
one-year  option.  Effective  January 1, 2000 the one-year  option was exercised
extending the contract  through  December 31, 2000. The contract  provides for a
minimum base annual salary of $117,000 plus commissions at the rate of 3% on all
payments  received by the Company  against Mr. Pompay's open orders booked up to
and including  December 31, 1996, and 1% on all payments received against orders
booked by the  Company  between  January  1, 1997 and  December  31,  1998.  The
contract further  provides that if Mr. Pompay's  employment is terminated by the
Company prior to the expiration  date, other than for cause, he will continue to
receive  his full  salary  for six  months  after the  termination  date and the
Company will pay him commissions due on all orders when payment is received. The
contract  also  provides for a restrictive  covenant of  non-competition  by Mr.
Pompay for a period of two years upon  termination  for cause or  termination of
the contract by Mr.  Pompay.  At the end of the contract term Mr. Pompay has the
option  to  accept  at the time of his  voluntary  resignation  as an  executive
officer,  an employment  contract as a  non-executive  officer in which he would
receive full  compensation  for 13 weeks and then for the next 104 weeks receive
$1,000 per week.

As part of a management succession plan as implemented by the Board of Directors
in June 1998, the Company has entered into  agreements  with the following named
executive officers: Joseph Canterino,  Barry Pinsley, Seymour Saslow and Herbert
Potoker.  The contracts  provide for the  resignation of the above officers from
their  positions  as  executive  officers  and  for  them to be  compensated  in


                                       33
<PAGE>

accordance  with  their  respective  agreements.   The  effective  date  of  the
resignations  of Mr.  Canterino and Mr. Barry Pinsley as executive  officers was
June 9,  1998.  The  effective  date of the  resignation  of Mr.  Potoker  as an
executive  officer was December 31, 1998. The effective date of the  resignation
of Mr. Saslow as an executive officer was December 31, 1999. The compensation to
be paid under the  agreements is $1,000 per week for Messrs.  Canterino,  Saslow
and Potoker and $500 per week for Mr.  Pinsley during such two-year  period.  In
the event of a named  executive  officer's  death,  the Company is  obligated to
continue the payments as scheduled under the terms of the agreements.

All of the named executive  officers'  contracts contain a restrictive  covenant
regarding  non-competition with the Company during the term of the agreement and
for a period  of five  years  after  the  termination  of the  agreement  and an
agreement regarding the treatment of confidential information.


Item 12.          Security Ownership of Certain Beneficial Owners
                  and Management.

Security Ownership of Certain Beneficial Owners

The  following  information  is  furnished  as of  September  13,  2000  (unless
otherwise  indicated) with respect to any person  (including any "group" as that
term is used in Section  13(d)(3)  of the Act) who is known to the Company to be
the  beneficial  owner of more than five  percent of any class of the  Company's
voting securities:


                                               Amount and
                                               Nature of
Title of           Name and Address            Beneficial             Percent of
Class              of Beneficial Owner         Ownership              Class
-----              -------------------         ---------              -----

Common Stock       Barry Pinsley                2,900  -Direct          8.0%
$.33-1/3 p.v.      P.O. Box 422                80,164  -Indirect (1)
                   Saratoga Springs,
                   NY 12866

     "             Dimensional Fund            74,500  -Direct (2)      7.1%
                   Advisors Inc.
                   1299 Ocean Avenue
                   11th Floor
                   Santa Monica,
                   CA 90401

     "             Franklin Resources, Inc.    90,000  -Direct (3)      8.6%
                   777 Mariners Island
                   Blvd., P.O. Box 7777
                   San Mateo,
                   CA 94403-7777

     "             The Adirondack Trust       280,585  -Direct (4)     27.1%
                   Company, as Trustee of
                   the Company's Employee
                   Retirement Plan and Trust
                   473 Broadway
                   Saratoga Springs,
                   NY 12866



(1) Does not include  2,000 shares of common  stock of the Company  owned by the
spouse of Barry  Pinsley,  beneficial  ownership of which is  disclaimed  by Mr.
Pinsley. The shares listed as indirectly owned by Barry Pinsley are 2,703 shares
allocated to him as of June 30, 2000 as a participant  in the Company's ESOP and

                                       34
<PAGE>


77,461  shares  owned by the trust  under the will of Ruth  Pinsley of which Mr.
Pinsley is trustee. Mr. Pinsley has the right to direct the manner in which such
shares are to be voted.


(2) The  information  as to the number of shares of common  stock of the Company
that may be deemed  beneficially  owned by advisory  clients of Dimensional Fund
Advisors Inc.  ("Dimensional")  is from the Schedule 13G dated  February 4, 2000
filed with the Securities and Exchange  Commission (the "SEC").  Dimensional,  a
registered  investment advisor, is deemed to have beneficial ownership of 74,500
shares of Espey Mfg. & Electronics  Corp.  stock as of February 4, 2000,  all of
which shares are held in Dimensional investment companies,  trusts and accounts.
Dimensional,  in its  role  as  investment  advisor  and/or  manager,  disclaims
beneficial ownership of all such shares.  Dimensional, in its role as investment
advisor  and/or  manager,  reported  sole  voting  power with  respect to 74,500
shares.

(3) The  information  as to the number of shares of common  stock of the Company
that may be deemed beneficially owned by Franklin Resources,  Inc.  ("Franklin")
is from the Schedule 13G, dated January 19,2000 filed with the SEC. The Franklin
statement indicated that Franklin's  investment  "advisory  subsidiaries",  have
sole voting and  dispositive  power with  respect to all of the shares of common
stock shown in the table above for Franklin.  The Franklin  statement  indicates
that the  common  stock set forth in the table is  beneficially  owned by one or
more open or closed-end investment companies or other managed accounts which are
advised by direct and indirect Franklin  investment advisory  subsidiaries.  The
statement  also indicated that it filed the Schedule 13G on behalf of itself and
Franklin's principal shareholders, Charles B. Johnson and Rupert H. Johnson, Jr.
(the "Principal Shareholders"), all of which are deemed beneficial owners of the
shares of common stock shown in the above table for  Franklin.  Franklin and the
Principal Shareholders disclaim any economic interest or beneficial ownership in
any of the common stock shown in the table for Franklin.

(4) This  information is from the Form 4 dated September 12, 2000 filed with the
SEC by the Trustee on behalf of the  Company's  ESOP.  The ESOP Trustee has sole
voting  power with  respect to  unallocated  common  shares  owned by the Trust,
84,048 shares as of September  13, 2000,  as directed by the Plan  Administrator
appointed by the Company's Board of Directors. As to the common shares allocated
to  participants,  196,537 shares as of September 13, 2000, the ESOP Trustee has
the power to vote such  shares as  directed  by such Plan  Administrator  to the
extent the  participants do not direct the manner in which such shares are to be
voted.


Security Ownership of Management

The  following  information  is  furnished  as of  September  13,  2000  (unless
otherwise  indicated),  as to each  class of equity  securities  of the  Company
beneficially  owned by all Directors and Executive Officers and by Directors and
Executive Officers of the Company as a Group:


                                       35
<PAGE>




                                            Amount and
                                            Nature of
Title of         Name of                    Beneficial              Percent of
Class            Beneficial Owner           Ownership               Class
-----            ----------------           ---------               -----

Common Stock
$.33-1/3 p.v.    Paul J. Corr                3,000-Direct            0.29%

     "           William P. Greene             100-Direct            0.05%
                                               451-Indirect (2)

     "           Carl Helmetag               1,800-Direct            0.22%
                                               500-Indirect (6)

     "           Michael W. Wool               100-Direct            0.01%

     "           Alvin O. Sabo                   0-Indirect (4)      -

     "           Gerald B.H. Solomon             0-Indirect (5)      -

     "           Barry Pinsley               2,600-Direct            8.00%
                                            80,164-Indirect
                                                (1)(2)(3)

     "           Seymour Saslow                351-Direct            0.63%
                                             6,170-Indirect(2)

     "           John J. Pompay, Jr.         7,251-Indirect(2)       0.70%

     "           Howard Pinsley             42,134-Direct            4.74%
                                             6,843-Indirect(2)

     "           David A. O'Neil             1,000-Direct            0.14%
                                               433-Indirect (2)

     "           Garry M. Jones              3,412-Indirect(2)       0.33%

     "           Peggy Murphy                2,110-Indirect(2)       0.20%

     "           Officers and Directors     51,085-Direct           15.33%
                           as a Group      107,334-Indirect


(1)    Excludes  2,000 shares owned by the spouse of Barry  Pinsley.  Beneficial
       ownership of the shares is disclaimed by Mr. Pinsley.
(2)    Includes  shares  allocated to named director or executive  officer as of
       June 30, 2000 as a participant  in the Company's  ESOP.  Each such person
       has the right to direct the manner in which such shares  allocated to him
       or her are to be voted by the ESOP Trustee.
(3)    Includes 77,461 shares owned by a testamentary trust of Ruth Pinsley, the
       deceased spouse of Sol Pinsley. As trustee of the trust, Barry Pinsley is
       deemed the beneficial owner, as defined in Rule 13d-3, of the shares held
       by the trust.
(4)    Excludes  1,000 shares  owned by the spouse of Alvin O. Sabo.  Beneficial
       ownership of the shares is disclaimed by Mr. Sabo.
(5)    Excludes  400  shares  owned  by  the  spouse  of  Gerald  B.H.  Solomon.
       Beneficial ownership of the shares is disclaimed by Mr. Solomon.
(6)    Includes 500 shares owned by the trust of Molly K.  Helmetag.  As trustee
       of the trust, Mr. Helmetag is deemed beneficial owner, as defined in rule
       13d-3, of the shares held by the trust.

There are no  arrangements  known to the Company the execution of which may at a
subsequent date result in change of control of the Company.


                                       36
<PAGE>


Item 13.          Certain Relationships and Related Transactions.

As previously  reported,  the Company  established and sold to the ESOP Trust on
June 5,  1989,  331,224  shares of the  Company's  treasury  stock at a price of
$26.50 per share,  which  purchase price was funded by the Company making a cash
contribution  and loan. Each year, the Company makes  contributions to the ESOP,
which are used to make loan interest and principal payments to the Company. With
each such  payment,  a portion of the common stock held by the ESOP is allocated
to  participating  employees.  As of June 30, 2000,  there were  197,137  shares
allocated to participants. The loan from the Company to the ESOP is repayable in
annual installments of $1,039,605,  including  interest,  through June 30, 2004.
Officers of the Company,  including two (Howard Pinsley and Bill Greene) who are
also  directors,  are eligible to participate in the ESOP and to have shares and
cash allocated to their accounts and  distributed to them in accordance with the
terms of the ESOP.

The Company paid the law firm of Langrock,  Sperry & Wool,  of which  Michael W.
Wool,  a director  of the  Company,  is a partner,  a total of $42,000 for legal
services during the fiscal year ended June 30, 2000.



                                     PART IV

Item 14.          Exhibits, Financial Statement Schedules, and Reports on
                  Form 8-K.

    (a)   1.      Financial Statements

                  Included in Part II, Item 8, of this report:

                      Reports of Independent Accountants

                      Balance Sheets at June 30, 2000 and 1999

                      Statements of Income for the years ended
                      June 30, 2000, 1999 and 1998

                      Statements of Changes in Stockholders' Equity
                      for the years ended June 30, 2000, 1999 and 1998

                      Statements of Cash Flows for the years ended
                      June 30, 2000, 1999 and 1998

                      Notes to Financial Statements

          2.      Financial Statement Schedules

                  Schedules  are omitted  because of the  absence of  conditions
                  under  which  they  are   required  or  because  the  required
                  information  is given  in the  financial  statements  or notes
                  thereto.

          3.      Exhibits

                  11.1   Statement re: Computation of Per Share Earnings

                  27     Financial Data Schedule

    (b)   Reports on Form 8-K

                  none

                                       37
<PAGE>





                               S I G N A T U R E S


         Pursuant to the  requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                              ESPEY MFG. & ELECTRONICS CORP.




                                            -----------------------
                                            Howard Pinsley,
                                            President and
                                            Chief Executive Officer


       Pursuant to the requirements of the Securities Exchange Act of 1934, this
report is signed below by the following  persons on behalf of the Registrant and
in the capacities and on the dates indicated.


                                            President
/s/Howard Pinsley                           (Principal Executive Officer)
------------------------------------
Howard Pinsley                              September 7, 2000


                                            Treasurer
/s/David O'Neil                             (Principal Financial Officer)
------------------------------------
David O'Neil                                September 7, 2000


                                            Assistant Treasurer
/s/Garry M. Jones                           (Principal Accounting Officer)
------------------------------------
Garry M. Jones                              September 7, 2000



/s/Barry Pinsley                            Director
------------------------------------
Barry Pinsley                               September 7, 2000



/s/Seymour Saslow                           Director
------------------------------------
Seymour Saslow                              September 7, 2000


                                            Vice President of
/s/William P. Greene                        operations and Director
------------------------------------
William P. Greene                           September 7, 2000



/s/Michael W. Wool                          Director
------------------------------------
Michael W. Wool                             September 7, 2000



/s/Paul J. Corr                             Director
------------------------------------
Paul J. Corr                                September 7, 2000



/s/Gerald B.H. Solomon                      Director
------------------------------------
Gerald B. H. Solomon                        September 7, 2000



/s/Alvin O. Sabo                            Director
------------------------------------
Alvin O. Sabo                               September 7, 2000



/s/Carl Helmetag                            Director
------------------------------------
Carl Helmetag                               September 7, 2000


                                       38